Downer EDI (DOW)

Brokers have reacted positively to news of
Downer EDI
’s completion of the first train set in its Waratah rail project for RailCorp.

The partnership between Downer EDI and RailCorp, Australia’s largest public-private partnership, has been troubled by cost blowouts and time delays. But Downer is not out of the woods yet, says JPMorgan, with six more train sets due by October 2011. There is a real possibility of further cost over-runs and delays, meaning there is uncertainty about Downer’s future financial position. The broker has a “neutral" rating on the stock.

Credit Suisse is more optimistic, and has increased its target price on the stock from $3.75 to $4.00 on the basis of valuation roll forward and risk reduction now that the first hurdle has been overcome. The first completion has “increased confidence" in Downer’s ability to complete the project without additional difficulties. Credit Suisse also has a “neutral" rating on the company.

Royal Bank of Scotland breaks the mould with a “buy" on the stock, believing it has been unfairly sold off and is trading below fair value. The broker has a 12-month target price of $3.77.